Zoom, The Accidental Pandemic Social Network

I'm Jason Kelly. The cover story for this week's issue of Bloomberg Business Week is about Zoom, a company that brought simplicity to video conferencing and then it became the Pandemics social network. Well, Carol, it's so fascinating because before the coronavirus, this was a company that had just gone public with a business model catering really to businesses. Now it's become critical infrastructure for millions of the rest of us as we connect with our friends, family, colleagues, classmates,

and customers during this unprecedented moment. That's so true, Jason, And if you haven't tried Zoom, I gotta say you may just be one of the few out there, because just about everybody is talking about it and they have used it A part of the charm Jason is really how easy it is to use it, and it has some fun features, like the ability to change your backdrop to say, a tropical beach. I gotta say I played with that. I know that that checks out? Do we

mention how many people are now using Zoom. Instead of the ten million daily users that Zoom was seeing in December, now wait for it, two hundred million users are using the service every day. The CEO, eric Uan, told the magazine that even he's in too many Zooms, he has indeed well. The company's share price has obviously surged this year, but because it's popularity has spread at the speed of

the pandemic, Zoom has also had an equally fast zoom lash. Yep, you heard it right, zoom lash over things like privacy mishandling of user data and also a few other concerns. It's a must read story. Here's Drake Bennett and Nico Grant story. It's called the Accidental Social Network. Eric Uan built Zoom into a tech unicorn in the unflashy business of enterprise communication, then suddenly the world needed it to be something else. By Drake Bennett and Nico Grant like

the rest of us. Eric Uan is taking things day by day right now, the founder and chief executive officer of teleconferencing software company Zoom, gets up each morning after three or four hours sleep and nervously checks the previous day's capacity numbers to make sure the servers aren't overwhelmed by traffic. Then he begins the long slog of video conference calls from his Bay Area home. It's too many

Zoom meetings, he says via Zoom. I hate that. Along with the crush of new users and the challenge of running a business during a pandemic, there's the deluge of negative news stories, the letter from the New York State Attorney General and the complaint from Connecticut Senator Richard Blumenthal, all accusing Zoom of mishandling or abusing user data while allowing hackers to run him up. It's not helping that with school and college canceled, you three kids are at

home clogging up the WiFi. The other night he got an email from a mother about a troll who used Zoom to invade her kids virtual classroom and show inappropriate content. Afterward, he couldn't fall asleep. The only thing keeping you on, saying is his mom, who's been living with the family. Each day for lunch, she brings him a noodle or rice dish she's made upbraiding him when he forgets to eat it, And if Juan has time after dinner, mother

and son take a walk in his backyard. I tell myself every morning when I wake up two things, Yuan says, don't let the world down. Don't let our users down. A month ago, his company was merely a fast growing success story in the somewhat boring universe of enterprise communications. Today, suddenly Zoom is critical infrastructure. As billions of people around the world socially distanced. To blunt the toll of the coronavirus, those lucky enough to still have jobs are trying to

work them from home. To do so, they're turning to remote collaboration tools. Messaging platforms such as Slack and video conferencing software like Cisco WebEx, Microsoft Teams, and especially Zoom have seen explosions in traffic. Every day is a record, Yuan says. Zoom's daily users ten million in December now number two hundred million. The company's share prices climbed seventy in the same period, doubling from early February to late March before dropping off even as markets and the global

economy have been pummeled. Zoom's new traffic isn't just from workplace conference calls. It's simple interface users enter a meeting with one click has made it perfect for millions of people who want to maintain at least a diluted form of human contact. Schools and colleges are teaching classes on Zoom. Alcoholics anonymous groups are using it to hold meetings. People are going to Zoom family reunions and happy hours and

trivia nights. They're dating, talking to therapists, and having birthdays in photos his sister posted on Twitter. Hunter Lee, a Walmart food sales associate in Greensburg, Pennsylvania, celebrated turning twenty one with family and friends looking out from the corner of the room, their webcam images tiled on the screen. A few days earlier, British psychiatrist Rob Baskin zoomed into the funeral of his mother, who had succumbed to the virus. For many, Zoom has become not just a way to socialize,

but the social fabric itself. Yuan is as surprised as anyone else at this turn of events. He didn't set out to create a business that would be a household name in these circumstances or any others. And while it's a testament to the technology that it has mostly handled a twentyfold surge in usage in other ways, the company, like many others, was blindsided by the past few weeks. I never thought that overnight the whole world would be using Zoom, he says. Unfortunately, we did not prepare well

mentally and strategy wise. Historically, giant communications networks Facebook, Twitter, A, T and T have all had their growing pains, but none had to go through them in just weeks. In times as vertiginous as these, even success can be brutal. Yuan has always been frustrated by the inconvenient fact of distance. The younger son of husband and wife mining engineers, he grew up in China's Shandong Province, a peninsula extending into

the Yellow Sea. Studying math and computer science at Shandong University, he had to take a ten hour train ride to see his girlfriend, a problem he solved by marrying her. At twenty two. Yuan, now fifty, idolized Bill Gates and was determined to work in Silicon Valley. His visa application, though, was denied on his first try and on the next seven after a bureaucratic mix up. It took nearly two years of persistence, but on the ninth attempt he got

into the US. Yuan found a job in California at WebEx, then a start up. By the late ninety nineties, technology had made real time video chat long a sci Fi staple, a reality, and web X was among the first companies to make a working product. Yuan was one of ten engineers when he joined web X, and by the time Cisco Systems acquired it a decade later, he was vice

president for engineering, managing eight hundred workers. Seeing the rise of the iPhone and its imitators, he became convinced the company needed a product that worked on mobile phones, not just PCs. Cisco's leadership didn't agree, and Yuan left in twenty eleven to found Zoom Video Communications, Inc. Taking a contingent of engineers with him. Headquartered in San Jose, Zoom built a research and development team in China, where engineers

would work for far less than their American counterparts. Yuan personally contacted every company that considered Zoom, but went with a competitor, something he still does. Zoom was appealing in part because it was a neutral platform. It wasn't tethered to Apple like face Time or Google or Microsoft like hangouts in Skype. Anyone, even someone without an account, could join a meeting from any device just by clicking a

link in a text or email. Hosts could record video and audio and generate transcripts, and it was easy for people to screen share. If you can keep your meetings under forty minutes and one participants, and honestly, please do, you can use Zoom for free. Clients who pay a monthly fee of nineteen dollars per meeting host can gather as many as a thousand people on a single video call.

In addition, the technology offers users a flattering soft focus mode and the menu of digital backdrops the Northern Lights, the Golden gate Bridge of Pristine Beach. These panoramas free home users from worrying about whether they're half dressed, spouse and children are in the webcam siteline. Customized Zoom backdrops are canvases for self expression, and the art form has

already grown baroque. A video producer named Dan Crowd created one recently that looks like a normal office, but as a Trump Loy animation, in which the door opens and crowd himself walks in obliviously interrupting his own meeting in a world of philosopher CEOs promising to transform the human condition through ride hailing or renting shared workspaces. Yuan is passionate about video conferencing software and uninterested in declaiming on

other topics. After Zoom's valuation surpassed one billion dollars in seventeen, he publicly scoffed at the unicorn label, saying it didn't mean anything unless the business continued to grow. When Zoom went public in April nineteen, shares jumped se on the first day of trading, giving it a value of sixteen billion dollars and you on a net worth of three billion. He went on Bloomberg Television complaining that the price is

too high and implored employees to get back to work. Today, the company's market capitalization is about thirty two billion dollars. Zoom had an early glimpse of the coronavirus at work the company. These Chinese offices and R and D facilities closed in late January they've since reopened. We were thoughtful and a little bit paranoid about what was to come, which has turned out to be a good thing. Kelly Steckelberg, the company's chief financial officer, says by Zoom from her home.

Zoom was quick to shutter its San Jose headquarters, sending employees home two weeks before Santa Clara County issued its shelter in place order, a decision that was admittedly easier for a video conferencing technology company. After Japan and Italy closed schools in late February and early March, Zoom removed the time limits on its free products for educational institutions in those countries. It continued to do so as school shut down spread globally. Still, Yuan thought the disruption would

be brief. Then in mid March, his kids schools closed. When Zoom's daily users passed one million, he began to realize what the crisis would mean for his company. Since then, it's been a dead sprint to cope with the ballooning demand. When you're on a Zoom meeting, the app adjusts bandwidth so that one participant's poor signal doesn't degrade another user's experience. Zoom does this by linking each participant to the closest of seventeen data centers it rents worldwide. If one center

is overloaded, it sends traffic to the next closest. To keep up with its new audience, the company has added two data centers, and it's been buying more of the cloud storage capacity it uses for surge protection. Zoom relies heavily on Amazon Web Services, as well as on Oracle for cloud computing. So far, these efforts have paid off. There have been complaints of poor call quality, and Zoom's website was briefly down for maintenance, but the platform has bent,

not broken under the new demands. On other fronts, Zoom has looked less deft. Its sudden prominence has brought at the attention of security researchers and privacy advocates, and the last week of March saw a steady stream of damaging revelations. On March twenty fourth, Consumer Reports detailed how z Whom's privacy policy let it share the content of video chats

with ad tracking companies. The piece highlighted how hosts don't need participants permission to record videos or make and share transcripts hosts can read texts that participants exchange on the apps chat function to The publication also noted Zoom's Panopticon like attendee attention tracking tool, which alerted a host if people clicked over to a different window on their computers for more than thirty seconds, suggesting they were otherwise occupied.

Two days later, tech site Motherboard revealed that Zoom's iPhone app, which was built using Facebook software, was sending user data to the social network giant without alerting users. On March thirty, former National Security Agency hacker Patrick Wardle blogged about flaws that would let attackers put malware on a computer or

hijacked the webcam and microphone. The next day, the website The Intercept reported that while Zoom claimed to guard user data using end to end encryption, the strongest available privacy per section, that wasn't true, and on April third, University of Toronto researchers published a paper revealing that the company sometimes routed meetings through servers in China even when all the participants were outside the country, raising the possibility that

Chinese authorities might try to listen in. Zoom was also attracting the interest of trolls elementary school teachers getting their classrooms up and running found their sessions disrupted by zoom bombers, with malicious interlopers joining to shout racist epithets or screenshare pornography. New York City's school system, the largest in the country, has banned the service, shifting to Microsoft teams and Google hangouts. Meet White supremacists started zoom bombing virtual Torah sessions and

webinars on anti Semitism with images of swastikas. The company has since amended its privacy policy to make clear that video and chats would not be shared, updated its iPhone app to stop sending data to Facebook, and patched the vulnerabilities that Wardle found. On April one, Chief product officer oded Gal addressed the encryption issue in a repentant, if

euphemism plagued post on the company blog. While we never intended to deceive any of our customers, he wrote, we recognize that there is a discrepancy between the commonly accepted definition of end to end in encryption and how we were using it. Later that day, Yuan posted his own apology and said that Zoom would probe for further security weaknesses.

Remove the attention tracker, offer training against Zoom bombing attacks, changed the default screen sharing settings to make things harder for trolls, and issue a transparency report detailing government data requests. When the University of Toronto report was published on April third, Uan responded the same day, blaming the China server issue on zooms scramble for capacity and announcing that the company

had corrected it. On April four, Zoom users got an email telling them that all meetings would now automatically have passwords. Yuan argues that Zoom's issues stem not just from its explosive grow oath, but also from the new types of users flocking to it. We built this as a platform for knowledge workers for businesses with I T departments, he says, sitting against a digital backdrop of the San Francisco Hills

that he obscures as he leans into his webcam. For Zoom users in non pandemic times, he goes on, there would be a tech support person helping them set up their screen sharing settings and reminding them to have a password in a work setting, for better or worse. We're more resigned to the idea that our boss will snoop on us, so that we don't slack off. Unlike elementary schools and happy our organizers, Zooms corporate clients have their own data and privacy policies, and at the office even

neo Nazis try to watch their language. Yuan's explanations are more convincing for some lapses than others. If anything, expectations should be higher for a collaboration app given that it engages with sensitive data. I'm granting access to a camera, a microphone, to the screen, everything that happens on the computer, says Ralph, a longtime chief information officer now at electronics manufacturer Lamentum. Zoom, in other words, should be the last

company to be casual about security. It may be that the main trait that let Zoom succeed is now haunting it. Its focus on simplifying the arcane and buggy process of video conferencing has created a product that's also simpler for others to manipulate. Yuan concedes that there could be a tension between security and simplicity. It may be time to revisit that, he says, Although it's hard to imagine, at some point the pandemic will end, Will Zoom go back

to being a corporate video conferencing company. I have no answer, Yuan says. His board asked him that a few days earlier, and he told them the same thing. Currently, while many new users aren't paying for the service, some have sprung for Zooms paid tiers, and some corporate clients upgraded when they sent their workforces home. On April one, Alliance Bernstein analyst Zane Crane said the pandemic could generate a few

hundred million in additional revenue. That's on top of the more than five million dollars Zoom predicted for the coming fiscal year in its last earnings call, a Zoom webinar held on March fourth, just after it closed its headquarters. Given the choice, Uan makes clear this isn't the path he would have chosen for himself or for the company, But he says he no longer pretends he's in control. You can't go back. That would not be responsible for now.

We have to embrace this new paradigm and figure out how to make it work. Zoom is now owned by the whole world, he adds. Then he has to go. It's lunchtime and his mother is patiently waiting, and that's the accidental social network it's this week's cover story, written by Drake Bennett and Nico Grant Jason. It's a must read.

Check out that story and all of the stories that are in the magazine also at bloomberg dot com and on the Bloomberg Terminal, and be sure to check out our daily radio show that's two to six pm Wall Street Time on Bloomberg Radio.